Amr Adly

The long-expected devaluation of the Egyptian pound is finally taking place. The pound has undergone its greatest devaluation against the US dollar since the 25 January revolution, falling from LE5.90 to about LE6.60 in a little over a month.

In this context, the pound has hit a historical low against the dollar and the euro since 2003, when the decision of floating the pound was first made. The question raised is why now, and not before, given the constant and continuous decline in the country’s foreign reserves since January 2011?

The pound is subject to an exchange system of managed floating. According to such a setting, the pound is left to float, so its value is primarily decided by the forces of supply and demand.

However, the Central Bank of Egypt manages the price through constant regulatory intervention so as to stabilize the pound value and fend off speculative attacks. In the past, the Central Bank would deploy some of the foreign reserves at critical times to increase the supply of dollars in a manner that would reduce the run on US dollars and thus save the pound value.

The Egyptian government has finally concluded an initial loan agreement with the IMF following two years of continual negotiations. The agreement is to be finalised by the IMF board and then signed and ratified by the Egyptian president, who holds both executive and legislative powers following the parliament’s disbanding several months ago. The government hopes that the loan will help to overcome Egypt’s chronic fiscal and financial problems that have become pressing due to the political turmoil following Mubarak’s ouster in February 2011.

The Egyptian economy is suffering from an ever-widening fiscal deficit that has exceeded 11 per cent of GDP in the last fiscal year. The deficit is expected to increase to 13 per cent by the end of the current fiscal year. Moreover, the Egyptian economy has been suffering from dwindling foreign reserves and a deteriorating balance of payments position, with large capital outflows, low investment rates and a slow recovery in the tourism sector.

The IMF loan is seen as a way out of these complex crises. The government claims that Egypt’s foreign debt stock is not that big (around $32 billion) and that the cost of foreign borrowing is far lower than domestic borrowing. In support, they assert that the IMF loan will open the door...

The Brotherhood points to the Turkish experience over the past 10 years as a model, but events bring Egypt closer to the Turkey of the 1980s in the aftermath of a military coup

The Muslim Brotherhood have often invoked the Turkish experience under the Justice and Development Party as their model. They point to Turkey as a successful case of reconciling Islam with capitalism, democracy and pro-western policies. Moreover, it is seen as a success story of civilian rule subjugating military power after decades of continuous military intervention in politics. With the large role that the military has in military in Egyptian politics, the Brotherhood were hoping to follow the Turkish model of gradual democratisation.

The Justice and Development Party’s grip on power in Turkey has strengthened since 2008. A number of generals were tried for the first time in the country’s history after their implication in an attempted coup. In 2009, the Turkish constitution was amended to further empower the parliamentary majority. The following year, the Justice and Development Party won the absolute majority in the national elections for the third time in a row. In 2011 the generals behind the 1980 coup were put on trial, undermining the very legitimacy of the military ‘corrective’ intervention that marked Turkish political life since the 1960s.

Following the ouster of Hosni Mubarak, Egypt's chances of undergoing meaningful democratisation considerably depend on the restructuring of the state bureaucracy. A functioning democratic system requires an autonomous, professional and accountable state apparatus that abides by the rule of law and protects human rights. Autonomy refers to the protection of the state administrative apparatus from the whims of political leadership, so it can preserve its political neutrality. Professionalisation indicates the formulation and observing of rational rules and regulations that guarantee institutional competence, efficiency and cohesion.

What are the means by which such a bureaucracy can develop in contemporary Egypt?

Egyptians have inherited from the Nasserist era a highly politicised state bureaucracy. Successive authoritarian regimes have exercised tight control over the state apparatus and have utilised it to serve ends related to their own political survival. On the one hand, the bureaucracy was used to cultivate support bases through the extension of patronage networks and the distribution of public employment. For instance, successive authoritarian regimes used to hire thousands upon thousands of graduates in different posts in the local and central government as a populist gesture. Little if any regard was given to the actual needs of these bureaucratic agencies...

On 31 October, a group of researchers, activists and civil society organizations will launch the Egyptian Debt Audit and Cancellation Campaign in coordination with international actions in Europe and Latin America. The main goal of the campaign is to audit and cancel Egypt's foreign debt that was accumulated under ousted President Hosni Mubarak. Based on credit that was extended to a dictatorial regime lacking even minimal standards of accountability, transparency and public oversight, this debt is considered "odious".

Egypt's outstanding foreign debt hovers around $35 billion or 15 percent of the GDP. Some may contend that Egypt is not a heavily indebted country. Foreign debt stock (denominated in foreign currencies) is by no means huge as compared to countries with similar income. Foreign debt service has constantly decreased since the early 1990s. According to the Ministry of Finance, the ratio of foreign debt service (interest and installment payments) to exports was around 6 percent in July/August 2011, which is far from alarming.

But foreign debt is only one side of the story. If domestic debt is considered as well, then Egypt is a heavily indebted country. Domestic debt, which refers to credit denominated in Egyptian pounds, stands at a massive 68 percent of the total GDP. This ratio exceeds the "safe limit" set by the...

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